Stories from the field

Farmers are tough cookies. As it turns out, they’re even tougher to finance effectively. Those who work in agriculture are faced with a unique set of conditions that make most traditional microfinance methods unfeasible for them. This post examines some of the reasons why farmers stand apart from other borrowers, and explores the clever efforts of an Ecuadorian Kiva partner to craft a loan product that is appropriate to their needs.

The partner is the Cooperativa de Ahorro y Credito San Jose de Chimbo, (Cooperativa San Jose or CSJ for short), a credit union based at nearly 8000 feet above sea level in Ecuador’s poorest province of Bolivar. Under the shadow of Mt. Chimborazo, Ecuador’s tallest (pictured above, from my roof), CSJ offers a well-designed product called Ventanillas Rurales (Window to the Countryside) which specifically caters to the particular agricultural circumstances of the mostly corn, bean and potato growers that inhabit this shockingly beautiful slice of the northwestern Andes.

Unique agricultural circumstance #1; Cash Flow Blues

At very most a few harvests per year mean that the small, frequent loan repayments that are so common in microfinance make little sense for farmers, since unlike many other micro-businesses they have nothing that even remotely resembles a consistent cash-flow.

Though repayment is guaranteed by the leadership, credit scores are kept at both the individual and group level and stored in a database accessible to financial institutions nationwide. This both mitigates the risk of over-indebtedness and encourages responsible behavior at the individual level so that group leaders are not stuck with a bill for which their members bear no responsibility. Individuals are encouraged to repay because if they do not their score will be docked and they will not likely be invited to join any groups for the following year’s loan, which brings us to…

2) Progressive lending structures

Group loans start at a certain amount per person, which slowly rises with each year’s loan. This gives both a group and an individual incentive to repay on time (see section 3.3 in link), because any delay can result in the amount being frozen or the loan request simply refused in the following year. The per-person amount is capped at a set amount after a few years, at which point the group members must use their hard-earned credit histories to apply for individual loans.

3) Single repayment just after the time of harvest with a flat interest rate

Every month groups are required to meet with their Loan Officer. At this time, each individual must make a small contribution to the group savings account. These payments may only be removed before the term ends if they are needed to cover defaulted members. This in some ways is a partial substitute for gradual repayment, although the funds, which are tiny compared to the principal, do not usually go towards paying down the debt.

5) Training, capacity building, and convenience.

CSJ provides borrowers with training sessions on how to increase their sales. They also send loan officers out to each group once per month to conduct business, eliminating costly travel for borrowers.

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